With inflation at 6.4%, many buyers are searching for investments that may beat the speed of inflation. The International X Tremendous Dividend ETF (NYSEARCA:SDIV) not solely helps buyers beat inflation, nevertheless it greater than doubles it with an enormous dividend yield of 14.5%.
SDIV additionally holds further enchantment to income-seeking buyers as a result of, not like many different dividend shares and ETFs, which pay dividends quarterly, this ETF pays a dividend every month.
Nonetheless, there are additionally some potential drawbacks that buyers ought to pay attention to. Let’s dive into the ins and outs of this ETF with an eye-popping yield.
SDIV ETF’s Technique
SDIV seeks to correspond typically to the outcomes and yield of the Solactive International SuperDividend Index earlier than charges and bills. Its technique is to spend money on a few of the highest-yielding dividend shares worldwide.
Investing in these high-yield shares offers SDIV a 14.5% yield that’s double the speed of inflation, almost 9 instances the typical yield of the S&P 500, and greater than 3 times the risk-free return that buyers can earn from 10-year treasuries.
There’s one thing to be stated for SDIV’s observe file in terms of the consistency of its dividend — since its inception in 2011, SDIV has made a month-to-month dividend fee every month for 11 years in a row.
SDIV’s High Holdings: Spanning the Globe
SDIV is extraordinarily diversified. It holds 130 shares, and its high 10 holdings make up simply 13.9% of property. Additionally, no holding accounts for greater than 1.7% of the fund. Moreover, SDIV’s holdings are additional diversified — each geographically and when it comes to what industries they hail from.
Solely 29.7% of the fund’s holdings are based mostly in the USA, so in case you are a U.S. investor searching for worldwide publicity, SDIV offers you that in spades. The fund’s second-largest publicity geographically is Brazil (14%), adopted by Hong Kong (11.2%), China (9.7%), and Nice Britain (6.0%). The ETF’s excessive stage of funding in worldwide equities offers it a variety of diversification, nevertheless it has additionally been a headwind in current instances because the robust greenback has been a problem for worldwide shares.
One further observe on geography is that whereas having an publicity of over 20% to China and Hong Kong mixed was a headwind final 12 months as a consequence of China’s zero-COVID coverage, this publicity may very well be a tailwind this 12 months as China emerges from these lockdowns.
China can also be one of many few main world economies presently easing financial coverage. China’s central financial institution is injecting liquidity into home markets to stimulate financial exercise, which might give SDIV a lift, going ahead.
A lot of SDIV’s high holdings are names that might not be instantly acquainted to most buyers. The highest holding, BW LPG, and fellow high 10 holding, Golden Ocean, are each concerned within the transport business. BW LPG yields a whopping 14.7%, and Golden Ocean yields 17.1% on a trailing-12-months foundation. BW LPG relies in Singapore, and Golden Ocean relies in Bermuda, highlighting the disparate nature of SDIV’s holdings.
High 10 holding Omega Healthcare Traders is a U.S.-based healthcare REIT that yields 9.8%. One other high 10 place, Arbor Realty (NYSE:ABR), is a U.S.-based firm investing in structured monetary merchandise in the true property market. ABR shares presently yield 12.2%.
Power is an business related to excessive dividend yields, so it’s unsurprising that it’s well-represented within the International X SuperDividend ETF by means of holdings comparable to Brazilian oil large Petrobras — though observe that these are most well-liked shares of Petrobras, not the frequent fairness — Antero Midstream, and Diversified Fuel & Oil.
See under for an summary of SDIV’s high holdings utilizing TipRanks’ Holdings instrument.
Dangers to Contemplate
Whereas SDIV’s 14.5% yield is tough to beat, this ETF will not be with out its dangers that buyers ought to pay attention to. These dangers are borne out by the fund’s efficiency over the current previous, which I’ll spotlight within the subsequent part. Nonetheless, as you may see from the record of holdings above, there aren’t many blue-chip names right here.
When shares have yields this excessive, in lots of instances, it may be an indication that one thing is flawed and that the market doesn’t imagine that the dividend payout is sustainable. Most corporations aren’t getting down to have a 14% dividend yield, so in lots of instances, a excessive yield like this may be the signal of a falling inventory worth.
It goes with out saying, however buyers wish to discover shares with a gorgeous dividend yield as a result of the dividend payout is growing 12 months after 12 months, not as a result of the inventory worth is declining over time.
A fast have a look at a few of SDIV’s holdings illustrates this level. Shares of Golden Ocean have declined by almost 75% over the previous decade, whereas shares of Omega Healthcare Traders have finished higher however have nonetheless misplaced 4.7% over the identical time-frame.
Traders who chased the excessive yields in these names not solely drastically underperformed the broader market over the previous 10 years however, within the case of Golden Ocean, additionally misplaced a big quantity of their principal.
Omega Healthcare Traders and Golden Ocean function Sensible Scores of 5 and seven out of 10, respectively, so the market is impartial on their prospects from right here. The Sensible Rating is TipRank’s proprietary quantitative inventory scoring system that evaluates shares on eight totally different market components, comparable to Wall Avenue analyst rankings, company insider transactions, hedge fund exercise, and extra. Shares with a Sensible Rating of 8 or above obtain “Outperform” rankings.
SDIV is lagging the broader market year-to-date with a 3.7% loss versus a achieve of 1.3% for the S&P 500. SDIV additionally misplaced 26.4% in 2022, which was a bit worse than the S&P 500.
Over the previous 5 years, SDIV is down 63.5%, and over the previous decade, it’s down 67%. In the meantime, the S&P 500 is up 38.8% and 147.5% over the previous 5 and 10 years, respectively.
So, whereas SDIV holders collected some enticing dividend payouts through the years, the worth of their funding went down considerably over time and underperformed the broader market. Traders additionally needed to pay an expense ratio of 0.58% annually throughout this time.
SDIV’s huge 14.5% dividend payout could be very interesting for income-oriented buyers, and its month-to-month payout schedule burnishes this enchantment. Nonetheless, there aren’t many blue chip holdings right here, and the ETF’s efficiency over the previous decade hasn’t been nice.
This isn’t to say that the ETF can’t outperform from right here, and SDIV additionally deserves credit score for its 11-year streak of month-to-month payouts, however buyers ought to pay attention to the potential dangers.
This is the reason buyers who’re concerned with SDIV and in producing some important earnings from their portfolio on a month-to-month foundation could be greatest served making SDIV one part of a well-diversified portfolio. Traders might, for instance, increase the yield of their portfolio by including a allocating a small portion of it to SDIV, however I’d be cautious about making a big allocation to it based mostly on the components mentioned above.